Paying Somali Pirates: How Ransom Payments Can Trigger U.S. Sanctions Compliance Issues
Written by: Chelsea Ellis, Counsel
March 13, 2025
At times serving as a plotline in books and movies, Somali pirate hijackings are nevertheless a real and rising threat to global maritime operators. While international efforts previously curbed piracy in the region, recent reports indicate a resurgence, with hijackings becoming more sophisticated and ransom payment demands increasing.
When a skiff carrying AK-47-toting pirates approaches a vessel, U.S. sanctions implications may not be the first thing that comes to mind. However, as negotiations unfold, it is crucial to consider the legal ramifications of paying a ransom, including potential U.S. sanctions exposure.
This article examines the complexities of Somali piracy, the mechanics of ransom payments, and the legal and regulatory risks that shipowners, insurers, financial institutions and other involved parties must navigate to ensure compliance while safeguarding the lives of the crew onboard.
Origins of Somali Piracy
Piracy in Somalia began following the collapse of the Somali government in the early 1990s and amid an ongoing brutal civil war. After the Somali government collapsed, it became impossible to control what happened on land in Somalia, let alone the sea.
In the early years, Somali pirate operations — generally comprising fishermen, former militiamen and Somali soldiers — were not as sophisticated or lucrative as they can be today.
Pirates would commonly prey on vessels no further than 100 nautical miles off the Somali coast. Therefore, the vessels that were hijacked belonged mostly to Somali fishermen. The pirates would simply board a vessel, steal the valuables on board and be on their way.
Over time, however, pirates began venturing further into international shipping lanes, which made operations more risky but also increased their profits.
Piracy has become normalized in Somalia, and has evolved into an integral multimillion dollar part of the country's shadow economy. The rise of Somali piracy can be attributed to the absence of a centralized government, a widespread economic depression and the lack of legitimate employment opportunities. In many coastal communities, piracy is viewed not as a crime, but as a form of economic survival.
A striking example of the commercialization of Somali piracy operations is the Hobyo- Harardhere piracy network, founded in 2005 by the notorious pirate leader Mohamed Abdi Hassan, also known as Afweyne.
Afweyne transformed Somali piracy operations into a commercial enterprise, drawing in former fishermen and militia, as well as ordinary Somali citizens looking for financial stability. In 2009, Harardhere even created a formal pirate stock exchange, which allowed locals to invest in piracy operations — contributing money, supplies or weapons in exchange for a share of future ransom payments.[1]
A Resurgence
After the 2009 hijacking of the Maersk Alabama, there was a marked increase in the use of armed guards on commercial vessels operating in high-risk areas such as the Horn of Africa. It was the first time since the early 19th century that pirates had hijacked a U.S.-flagged vessel.
The highjacking led to a high-stakes hostage situation that ended when U.S. Navy SEAL snipers killed three of the four pirates and rescued the ship's crew, including its captain, Richard Phillips.
The dramatic events were later depicted in the 2013 film "Captain Phillips", starring Tom Hanks, increasing awareness of the incident. The use of armed guards aboard vessels, rare before the Maersk Alabama hijacking, became a standard practice for shipping companies.
The incident also influenced changes in international maritime law and safety practices. Shipping companies became more accountable for the safety of their crews, which led to increased protective measures. The incident also spurred international efforts, such as the deployment of multinational naval forces to patrol piracy hotspots, that further contributed to the decline in successful hijackings in the region.
After a period of relative dormancy, there has been an uptick in piracy off the Horn of Africa. The International Chamber of Commerce International Maritime Bureau's "Piracy and Armed Robbery Against Ships Report" for 2024 recorded a total of 116 piracy and armed robbery incidents globally, a slight decline from 120 incidents in 2023.[2]
Although there was a global decline, piracy incidents off the coast of Somalia and in the Gulf of Aden saw a resurgence in 2024, with seven reported incidents, including three vessel hijackings, two boardings, one fired-upon case and one attempted attack.
Most recently, on Feb. 19, suspected Somali pirates reportedly seized a Yemeni dhow, a traditional fishing boat, off the town of Eyl, Somalia,[3] just days after another attempted attack on a Yemeni vessel.
Other notable incidents include the hijacking of the Bulgarian-owned MV Ruen in December 2023, rescued after three months by the Indian navy, and the Bangladesh-flagged MV Abdullah in March 2024, which was released a month later, reportedly after a $5 million ransom payment was made.
Another incident occurred in November 2024, when Chinese-owned fishing vessel, LIAO DONG YU 578, owned by Liaoning Daping Fishery Group, was hijacked off Somalia's northeastern coast with a crew of 18 onboard.
The pirates reportedly demanded $10 million in ransom. The vessel was rescued in January, however, it is unclear whether the ransom was paid.[4]
Mechanics of Piracy Ransom Payment
The payment of ransom in Somali piracy hijackings follows a structured and clandestine process, often involving multiple intermediaries, insurance companies and financial institutions. The negotiation and settlement process can take months. In most cases, shipowners, insurers or the employers of the kidnapped crew members ultimately pay the ransom.
Most Somali pirate ransom payments are made in U.S. dollars due to Somalia's partially dollarized economy and widespread mistrust of the Somali shilling, which has been in prolonged collapse with no new banknotes printed since 1991.
Pirate ransom is generally paid in physical cash, delivered via airdrops, boat handovers, or through hawala networks, the informal money transfer systems used to distribute payments across different regions.
Once the ransom is secured, the money is distributed among various stakeholders involved in the operation, e.g., pirate crews, investors, local clan leaders, etc.
U.S. Somalia Sanctions
The U.S. imposed sanctions on Somalia primarily due to its instability, ongoing armed conflict, terrorist activity and maritime piracy, all of which have been deemed threats to U.S. national security and foreign policy interests.
To address these concerns, on April 12, 2010, President Barack Obama issued Executive Order No. 13536 blocking certain property of persons contributing to the Somali conflict. The order was issued under the International Emergency Economic Powers Act, and specifically targets individuals and entities that threaten Somalia's peace, security or stability. Among the threats identified in the order are acts of piracy and armed robbery at sea.
The Somali conflict order prohibits U.S. persons from engaging in transactions with the specially designated nationals named in the order. These SDNs include individuals and entities involved in activities that support piracy, terrorism or broader destabilization efforts.
While the order does not explicitly prohibit ransom payments to Somali pirates who are not SDNs, it does expose entities to potential sanctions risks if a ransom payment is found to have materially assisted, sponsored or provided financial support to a designated person.
Currently, the U.S. Office of Foreign Assets Control has designated 11 individuals and one entity, al-Shabaab, under the order for activities that threaten Somalia's stability, including acts of piracy.
Although Executive Order No. 13536 does not explicitly prohibit ransom payments to all Somali pirates, i.e., those who have not been sanctioned, any payment that directly or indirectly benefits an SDN or a terrorist organization on the SDN list could create U.S. sanctions exposure. The order prohibits the provision of "financial, material, logistical, or technical support" to individuals or groups sanctioned under the order.
Specifically, the sanctions risk associated with ransom payments hinges on whether the recipients of the payment are:
SDNs under Executive Order No. 13536 or related U.S. sanctions programs;
Affiliated with a sanctioned entity, such as al-Shabaab, which is a U.S.-designated terrorist organization; or
Part of a financial network that benefits sanctioned individuals or entities, even indirectly.
Due to the opaque nature of piracy networks and their financial flows, it is often difficult to ascertain whether a ransom ultimately benefits an SDN or a terrorist group. While many Somali pirates operate independently of al-Shabaab, there have been cases where ransom proceeds were funneled into broader criminal or terrorist networks.[5]
Payment of piracy ransom in U.S. dollars exposes those involved to U.S. sanctions risks, as any payment in U.S. dollars may pass through the U.S. financial system, even if it is routed through foreign intermediaries. This creates a U.S. nexus that places the transaction within OFAC's jurisdiction — subjecting those involved to potential enforcement actions.
U.S. Secondary Sanctions Exposure
While Executive Order No. 13536 does not explicitly impose secondary sanctions, there are certain circumstances where exposure to secondary sanctions could arise, particularly when transactions involve specially designated global terrorists, or SDGTs, such as al-Shabaab.
Under U.S. sanctions programs that include secondary sanctions authorities, OFAC may impose sanctions on foreign persons not subject to U.S. jurisdiction for transacting with sanctioned persons, even if no U.S. nexus is involved — i.e., payment in U.S. dollars, or U.S. persons involved in the transaction.
Al-Shabaab is designated under Executive Order No. 13536, and is an SDGT under Executive Order No. 13224, an executive order issued by President George W. Bush in response to the attacks on Sept. 11 that contains elements of secondary sanctions.
Accordingly, if a non-U.S. person provides material support, financial services or other assistance to al-Shabaab, they could be subject to secondary sanctions under the Bush executive order. If a Somali pirate group involved in the ransom payment has ties to al- Shabaab or shares ransom proceeds with an SDGT, OFAC may impose secondary sanctions on foreign financial institutions determined to have conducted or facilitated any significant transaction with the SDGTs.
Essentially, even if a pirate or group is not explicitly designated in Obama's order, there is still the risk that a ransom payment could indirectly benefit an SDGT.
As a practical matter, parties involved in making a ransom payment should take certain reasonable measures to reduce the risk of violating U.S. sanctions or triggering secondary sanctions risks. These include:
Conducting open source due diligence on the ransom-payment requester;
Conducting open source due diligence on the payee's connections to any SDN, financial network, or individuals or entity that may be linked to a terrorist organization or criminal enterprise;
Procuring the cash from a financial institution that maintain robust anti-money laundering and counterterrorism financing controls;
Tracking the movement of funds after payment where possible to enable corrective action and mitigate risk if funds are diverted to sanctioned or illicit actors; and
Notifying OFAC of the proposed transaction and seeking its guidance where appropriate.
Conclusion
The resurgence of Somali piracy in recent years raises complex U.S. sanctions and geopolitical considerations. From a legal perspective, the payment of a ransom to Somali pirates operates in a U.S.-sanctions gray area.
While Executive Order No. 13536 does not explicitly prohibit ransom payments, it does bar transactions with SDNs and SDGTs such as al-Shabaab, creating secondary-sanctions implications for foreign financial institutions. If a ransom payment directly or indirectly benefits a sanctioned entity, companies, shipowners or insurers involved in such transactions could face sanctions enforcement actions from OFAC.
Additionally, given that Somalia's economy is partially dollarized and most ransom payments are made in U.S. dollars, payments potentially implicate U.S. financial institutions and increase compliance risks.
Due to these risks, maritime operators, insurers and financial institutions must exercise extreme caution when navigating ransom payments related to Somali piracy. Enhanced due diligence, strict compliance protocols, and, in certain cases, voluntary notifications to OFAC may serve as risk mitigation strategies.
Law360 have covered this alert. Read the Law360 article here.
This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with LMD Trade Law PLLC or its affiliates.
[1] Mathew Laborde, Alternative Investments III: The Pirate Stock Exchange, Georgetown Collegiate Investors (Feb. 7, 2022), https://www.georgetowninvest.com/blog/alternative-investments-iii-the-pirate-stock-exchange.
[2] International Maritime Bureau, Piracy and Armed Robbery Against Ships: Report for the Period 1 January – 31 December 2024, ICC Commercial Crime Services (Jan. 2025), https://icc-ccs.org/wp-content/uploads/2025/01/2024-Jan-Dec-IMB-Piracy-and- Armed-Robbery-Report-2.pdf.
[3] Associated Press, Yemeni fishing boat in second recent attack (Feb. 19, 2025), https://apnews.com/article/somalia-piracy-ship-seized-yemen- 85d96bb0f0f2942050d87addbe08e3c0.
[4] Omar Faruk, China says a fishing vessel hijacked off Somalia with 18 crew aboard has been freed, AP News (Jan. 13, 2025) https://apnews.com/article/somalia-piracy-chinese- fishing-vessel-bd3f39cc51d2fc0b34382885dd37d5d3.
[5] Reuters, Piracy ransom cash ends up with Somali militants (July 6, 2011),https://www.reuters.com/article/somalia-piracy-idUSLDE7650U320110706/